Most futures commodity exchanges calculate performance bonds using a scenario based system such as the system developed by the Chicago Mercantile Exchange called Standard Portfolio Analysis of Risk™ (SPAN®). Since its implementation, SPAN has become the industry standard for establishing performance bond or margin requirements associated with a futures portfolio. As such, there has been little in development of value-at-risk determinations for performance bonds. As futures exchanges expand their product offerings to more complex and exotic products, such as for example, basis, calendar spread options, and average price options, the limitations of the SPAN system for margin requirements become more apparent.
Additionally, the tiered structure SPAN uses to apply credits may misrepresent risk. For example, if a customer has long and short outright futures positions intended to completely offset his short and long calendar swaps, SPAN will spread the futures first and the swaps second effectively producing two sets of spreads with performance bond requirements on both. The trader would expect the system to spread the long futures with the short calendar swaps and vice versa which would otherwise produce virtually no performance bond requirement. Moreover, the myriad of potential spreads and offsets is difficult if not impossible to cover while simultaneously margining in true risk terms with the SPAN system because of certain rigidity in the SPAN software that was initially developed for more traditional futures and options trading.
Accordingly there is a need in the art for an alternative performance bond or margining system that more accurately determines an exchange customer's risk exposure by accounting for all open positions in a portfolio, which accommodates the increasing number of exotic products traded on the exchange, and better allows for intra and inter commodity, calendar, and exchange positions.
The discussion of the background to the invention herein is included to explain the context of the invention. This is not to be taken as an admission that any of the material referred to was published, known, or part of the common general knowledge as at the priority date of any of the claims.
Throughout the description and claims of the specification the word “comprise” and variations thereof, such as “comprising” and “comprises”, is not intended to exclude other additives, components, integers or steps.